The Nature of PFI

Abstract

This article proposes a U.K. Private Finance Initiative (PFI) holistic and integrative con-ceptual model that integrates a hierarchy of four levels of concepts: government ideology, principles, practices, and tools. The PFI life cycle process, value chain, and value-delivery network are also mapped. PFI is as a novel way to do business, and requires the establishment of a long-term relationship. PFI is an innovative concession as it relates the revenues for the private partner solely to the provision of a service, which in turn is performance related. To assess PFI success or failure is still premature because of the long life cycle of PFI projects, 20 to 30 years, and most projects have not yet been in operation for 10 years. In addition, based on the empirical data from the research and recurring to business information sources and academic studies on PFI (still very limited), the article addresses two important issues that emerged from the introduction of PFI: first the change in organizational culture brought about by a move into the services sector, coupled with the need to deal with long-term issues, followed by the financing structure, that is, the balancing of debt and equity and the hypothesis of considering bond issues to finance senior debt.